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Balance of Payments - June Quarter 2005

NO.074

BALANCE OF PAYMENTS – JUNE QUARTER 2005

Data released this morning by the Australian Bureau of Statistics show that
Australia’s current account deficit (CAD) for the June quarter 2005 narrowed
significantly, falling by $2.4billion to $12.6billion, reflecting falls in
both the trade and net income deficits.

The trade deficit fell by $2billion to $4.9billion, its lowest level since
the March quarter 2003. The June quarter balance of payments incorporates the
impact of higher iron ore and coal export contract prices that took effect on
1April2005, underpinned by strong global demand for Australia’s commodity
exports. Increased contract prices will continue to flow through to higher export
values in the September quarter 2005, being the first full quarter in which
the higher prices will apply to all contracted exports. In line with higher
bulk commodity export prices, the terms of trade grew by 5.8percent in the
June quarter to be 11.5percent higher through the year, and are now at their
highest level since the March quarter 1974.

Responding to strong global demand for commodities, Australia’s mining
sector has made a significant investment in new capacity over the past three
years, spending more than $27billion. These increases in production capacity,
combined with measures to alleviate transport bottlenecks at key ports, will
see mineral export volumes grow strongly over 2005-06.

Abstracting from price effects, export volumes grew by 1.6percent in the
June quarter and have increased by 1.9percent over the last year. Exports
of non-rural goods grew by 2.6percent, with transport equipment, other manufactures
and metals excluding gold showing the strongest growth. Rural exports grew by
3percent, led by wool and sheepskins, and other rural goods. This increase
came despite lingering effects of dry weather continuing to limit exports of
cereals and grain products.

Import volumes grew by 2percent in the June quarter, with imports of fuels
and lubricants growing strongly due to higher imports of diesel and other crude
oil related fuels and lubricants. Capital good imports also grew strongly as
businesses continue to invest in new IT, plant and other equipment.

Australia’s net foreign debt was $430billion in the June quarter. The
general government share of Australia’s net foreign debt was a low 5.3percent
in the June quarter. The debt servicing ratio is currently at 9.5percent of
export income compared with the peak in the early 1990s when the debt servicing
ratio hit 20percent of export income.

The growth in Australia’s net external liabilities over the last decade
has coincided with a period of sustained economic strength. The budget is in
surplus, government debt is close to zero, the unemployment rate is at a 28-year
low, and inflation and interest rates are at low levels by historical standards.
It is only through careful economic management and maintaining the impetus for
reform that the Australian economy will continue to record sustainable growth.